Next Article: What is Capitalization & How do you Calculate It?
Back to: CAPITAL STRUCTURE
Issued and Outstanding Shares
As previously discussed, authorized shares are the number of shares (of any class) that are listed in the articles of incorporation. Issued shares are shares that are actually distributed to shareholders. Outstanding shares may have a little broader definition. It may include all promises or obligations to issue shares, such as options and warrants.
There are multiple options for calculating the total number of outstanding shares. The calculation may include just the issued shares, or it may include all promises or obligations to issue shares. This is known as a “Fully-diluted basis” for calculating outstanding shares. Fully-diluted calculation of outstanding shares includes common shares, preferred shares, warrants, options, options pool, and any convertible securities (such as convertible debt). Remember, warrants, options, and other convertible instruments will have a conversion ratio that may convert the instrument into any number of common shares. You will use the conversion to common shares ratio to calculate the total, fully-diluted number of common shares. The effect of these different methods greatly affects the ownership percentage calculation.